Most of the port is in the suburb of West Melbourne and should not be confused with the Melbourne suburb of Port Melbourne although Webb Dock and Station Pier, parts of the Port of Melbourne, are in Port Melbourne.

Port Melbourne (or Sandridge as it was known until 1884) was a busy port early in the history of Melbourne, but declined as a cargo port with the development of the Port of Melbourne in the late 19th century. It retains Melbourne's passenger terminal however, with cruise ships and ferries using Station Pier.

In Melbourne's early days, large ships were unable to navigate the Yarra River, so cargo destined for Melbourne had to be unloaded at either Hobsons Bay (now Williamstown) or Sandridge (now Port Melbourne) and transferred either by rail or by cargo lighter to warehouses which were concentrated around King Street. This was an expensive and inefficient process.

In 1877, Victoria's colonial government resolved to make the Yarra more navigable and engaged English engineer Sir John Coode to devise a solution. His solution was to change the course of the river by cutting a canal south of the original course of the river. This shortened it by a mile and made it much wider. It also created Coode Island, a name still used today although the northern course of the river has long since disappeared.

Coode also oversaw the construction of Victoria Dock in swampland to the west of the city. This opened in 1889.

Over time the docks moved progressively downstream as ships became larger and road bridges were built across the Yarra. The construction of the Spencer Street Bridge in 1928 and the Charles Grimes Bridge in 1975 each closed access to docks to the east. The barquePolly Woodside lying in the old Duke and Orr drydock, the warehouses of South Wharf and the Mission to Seafarers building are now the only reminders of the maritime history of this area.

Development slowed during the Great Depression and World War II but resumed after the war with construction of Appleton Dock (1956), Webb Dock (1960) at the mouth of the Yarra and Swanson Dock, the first container terminal, on what was Coode Island.

Eventually Victoria Dock became too small to handle large container ships and was closed. Its fate was permanently sealed by the construction of the Bolte Bridge, part of CityLink, across its entrance in 1999. It now forms the centrepiece of the Melbourne Docklands redevelopment.

In 1991 a large fire at the Coode Island bulk liquid handling facility blanketed much of Melbourne in toxic fumes. The public outrage forced the government to investigate relocating the facility. Point Lillias near Geelong was considered. However, due to the high cost involved and local opposition the facility has remained at Coode Island.[3]

Recently further controversy has resulted from plans to dredge Port Phillip to deepen shipping channels to allow larger ships into the Port of Melbourne. This process commenced in 2008 and was completed in November 2009. It involved removing more than 22 million cubic metres of sand and silt to provide a minimum 14 metre draught at all times. Opposition to this project stems from potential environmental damage due to silting [4] and loss of amenity for bayside residents due to the noise produced by the dredges. The project was subject to the strictest environmental testing and monitoring requirements in the world at the time. These activities will continue on for many years to help protect the Port Phillip Bay ecosystems.

In the future the Victorian Government will redevelop the Port of Melbourne to better integrate it with other modes of transport. The Melbourne wholesale fruit and vegetable market will be relocated to Epping and Footscray Road raised so that port users will have improved access to the rail facilities at South Dynon.[5]

Webb Dock West is a roll-on-roll-off facility for motor vehicles. It is managed by Toll Stevedores.

Webb Dock East 1 is managed by Toll Shipping for Tasmanian general cargo.

Webb Dock East 2 is also for general Tasmanian cargo but managed by Patrick.

Webb Dock East 3,4,5 are managed by Patrick for general and automotive cargo.

Gellibrand Pier is operated by Mobil and has a direct pipeline to their refinery at Altona

Holden Dock handles refined petroleum products.

South Wharf berths 26 to 33 handle general cargo.

From May 2003 till May 2004, approximately 3,400 ships from 42 different lines called at the Port of Melbourne. The port handled 64.4 million tonnes of cargo, including a throughput of 1.9 million twenty-foot equivalent units (TEU) of cargo. In 2006-07 it became the first Australian port to handle two million TEU in a year.[6]

Railway goods sidings serve both Swanson Dock East and West, permitting the transfer of shipping containers between sea and rail transport. Originally provided in the 1960s with the development of the port, they were later removed and not restored until 2003 as a 1500 metre long siding.[7][8] Rail sidings at Appleton Dock reopened in 2000 to serve a new export grain terminal at the port.[9] Dual gauge access is provided to the majority of sidings in the area. Extensive sidings once served the Victoria Dock area,[10] as well as Webb Dock which had a dedicated line.[11]